Ex- RBI governor Y.V. Reddy on Friday said the government with a weak fiscal balance sheet needs to ensure that RBI balance sheet remains strong.
The government might like to assure the markets that RBI has the capital to meet any crisis that may arise without depending on governments.
There is merit in keeping at least the central bank’s balance sheet strong if the government’s fiscal balance sheet is weak.
Ex- RBI governor Y.V. Reddy on Friday said the government with a weak fiscal balance sheet needs to ensure that RBI balance sheet remains strong. According to him, the government has the full power to exercise claims over RBI reserves. However, the way, it uses this right gives signals to the market and influences public opinion.
While delivering a lecture on ‘Central Banking in India: Retrospect and Prospect’ at Gokhale Institute of Politics and Economics on Friday, he said that the government might like to assure the markets that RBI has the capital to meet any crisis that may arise without depending on governments.
He further added that there is merit in keeping at least the central bank’s balance sheet strong if the government’s fiscal balance sheet is weak. However, in the end, it is the judgement of government that prevails on the adequacy issues, though procedurally that of the board.